By Agness Changala
Economist Yusuf Dodia says he expects the Kwacha to strengthen in January owing to the anticipated Tracking Framework being implemented.
And Dodia says the $187 million disbursed by the International Monetary Fund (IMF) is not money meant to boost the economy or any sector of the economy but targeted towards governance and social protection.
Commenting on the continued depreciation of the Kwacha against the Dollar, Dodia said there is a strange phenomenon which leaves a lot to speculation.
He observed that normally in December, the Kwacha becomes very strong because of exporters from Zambia who bring in money to pay for various bills and services.
“Clearly there is a strange phenomenon which leaves a lot to speculation, normally in the month of December the Kwacha becomes very strong because of exporters from Zambia bringing in money to pay Christmas bonuses to their workers, to pay year in taxes and quarterly taxes to renew their lease agreement which comes to an end, at the end of the year. So they renew and pay,” Dodia said. “This is a very strange development we are seeing where the kwacha is getting weaker as we come to the end of the year when it’s supposed to get stronger.”
Dodia however, said the reason the Kwacha had continued to weaken is because the government has decided to implement the Export Proceeds Tracking Framework.
“There is speculation out there that the reason could be that the government has decided to implement the Export Proceeds Tracking Framework which is compelling all exporters to bring their export earnings into Zambian banks. Now this could be a mechanism which is not welcome by the mining companies and large exporters and as a result they may be holding back foreign currency into the economy to show their displeasure,” Dodia said. “So this is the common speculation that’s going on out there. That is this the cause. Beyond that I don’t think there is much we can comment on.”
He said in January 2024, the country is likely to see the Exports Proceeds Tracking Framework being implemented which would mean that all exporters will have to bring foreign currency earnings and deposit them in Zambian banks.
Dodia said this will strengthen the Kwacha within three months.
“We should see our Kwacha move from 25, 26 to a Dollar to less than 15 Kwacha to a Dollar. We should see the inflation rate come down, we should see the Monetary Policy Rate come down, and we should have a stronger economy because of this mechanism. It will also mean that Zambian business can borrow from the banking system which will have so much foreign currency and we can grow Zambian owned business in a very strategic way and become the foundation of our economy going into the future,” he said. “So this might be the calm before the storm. Meaning you are seeing this kind of phenomena which looks like our economy is deteriorating but in January, we should see the opposite once the foreign currency starts flowing into the Zambian banks on a large scale.”
Dodia explained that the IMF signed a staff level agreement under the Extended Credit Facility some one or two years ago, where they were going to fund Zambia at $1.3billion in total over a period of three years and that about 400 million per year.
“And you will appreciate that a few months ago, the IMF allowed us to draw down $188 million so this $187 that has now been approved for draw down makes up the 400 million allocation for this year. But the big question we need to understand is that this money is not meant for use by the government in any way the government chooses. This money is targeted towards very specific areas of development such as social cash transfer, Farmer Input Support Programme and support for the vulnerable,” he said.
Dodia said this is what the IMF decided they wanted to support to avoid a situation where the vulnerable people are being affected by the tough economy the country is currently facing, adding that support to social protection is where the money will go as well as good governance.
“They want to finance the development and improvement of the operations of the Drug Enforcement Commission (DEC), the Anti-Corruption Commission (ACC), Zambia Police (ZP), The Financial Intelligence Center, National Prosecution Authority (NPA) and Public Protector in order to ensure that we are going to stem and try to stamp out corruption. Because our ability to negotiate with the IMF and the other creditors that we have is going to be based on how well we run our economy. And running our economy is based on good governance principles, investigative agencies and to operate extremely well,” said Dodia.
